APPLOVIN CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our final prospectus related to our initial public offering, or IPO, datedApril 14, 2021 . This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Overview Our mission is to grow the mobile app ecosystem by enabling the success of mobile app developers. Our software solutions provide advanced tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. Since inception, our platform has driven over six billion mobile app installs for mobile app developers. Our software, coupled with our deep industry knowledge and expertise, has allowed us to rapidly scale a successful and diversified portfolio of owned mobile apps. We have also accelerated our market penetration through an active acquisition and partnership strategy. Our scaled and integrated business model sits at the nexus of the mobile app ecosystem, which creates a durable competitive advantage that has fueled our clients' success and our strong growth. Since our founding in 2011, we have been focused on building a software-based platform for mobile app developers to improve the marketing and monetization of their apps. Our founders, who are mobile app developers themselves, quickly realized the real impediment to success and growth in the mobile app ecosystem was a discovery and monetization problem-breaking through the congested app stores to efficiently find users and successfully grow their business. Their first-hand experience with these developer challenges led to the development of our infrastructure and software-AppLovin Core Technologies andAppLovin Software Platform. We capitalized on our success and understanding of the mobile app ecosystem by launching AppLovin Apps in 2018. Our Apps now consist of a globally diversified portfolio of over 200 free-to-play mobile games across five genres, run by sixteen studios. For the three months endedJune 30, 2021 , our revenue grew 123% year-over-year, from$299.3 million for the three months endedJune 30, 2020 to$668.8 million in the comparative period in 2021. We generated a net income of$14.4 million for the three months endedJune 30, 2021 , and a net loss of$21.7 million in the comparative period in 2020. We generated Adjusted EBITDA of$183.7 million , and$60.9 million for the three months endedJune 30, 2021 and 2020, respectively. Additionally, we have generated strong cash flows, with net cash provided by operating activities of$152.3 million and$85.3 million in the six months endedJune 30, 2021 and 2020, respectively. This has allowed us to reinvest in our expansion and growth and consummate strategic acquisitions and partnerships. See the section titled "Non-GAAP Financial Measures" for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP. Our Business Model We collect revenue from two sources-business clients and consumers. During the three months endedJune 30, 2021 , Business Revenue represented 46.0% of total revenue and Consumer Revenue represented 54.0% of total revenue. Business Revenue We generate Business Revenue from fees paid by mobile app advertisers, or business clients, that use our Software Platform to grow and monetize their apps. We also collect Business Revenue from business clients that purchase the digital advertising inventory of our portfolio of Apps. We are able to grow our Business Revenue by improving our Software Platform, adding more apps to our Apps portfolio and increasing engagement on our existing Apps. 31 -------------------------------------------------------------------------------- Table of contents Business clients include a wide variety of advertisers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google. While we have over 500 business clients as ofJune 30, 2021 , the vast majority of our revenue is derived from our Enterprise Clients. See "Key Metrics" below for additional information on how we calculate Enterprise Clients. Approximately 97% of our Business Revenue for the twelve months endedJune 30, 2021 came from our 247 Enterprise Clients. Our Enterprise Clients had a Net Dollar-Based Retention Rate of approximately 157% for the twelve months endedJune 30 , 20211. We see multiple opportunities to gain new business clients, and to increase spend from existing business clients, as we help them grow their businesses and make them more successful. Business Revenue from our Apps was 52.7% of total Business Revenue in the three months endedJune 30, 2021 . Our Software Platform includes AppDiscovery, Adjust and MAX. Business clients use AppDiscovery to automate, optimize, and manage their user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spend in an effort to achieve their return on advertising spend targets and other marketing objectives. AppDiscovery comprises the vast majority of revenue from our Software Platform. Revenue is generated from our advertisers, typically on a performance-based, cost-per-install basis, and shared with our advertising publishers, typically on a cost per impression model. Business clients use Adjust's SaaS mobile marketing platform to better understand their users' journey while allowing marketers to make smarter decisions through measurement, attribution and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee. Business clients use MAX to optimize purchases of app ad inventory. The Compass Analytics tool within MAX provides insights to manage against key performance indicators, understand the long-term value of users, and help manage profitability. Revenue from MAX is generated based on a percentage of client spend. As more developers move to in-app bidding monetization, we expect growth in the adoption of, and revenue from, MAX. Business clients that purchase advertising inventory from our Apps are able to target highly relevant users from our diverse and global portfolio of over 200 mobile games. Our clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video, and are able to match these ads with relevant users resulting in a better return on their advertising spend. By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, we are able to increase our revenue from business clients that purchase advertising inventory from our Apps. Revenue from business clients related to our Apps is generated from ads purchased by advertisers, as well as from revenue-sharing agreements between some of our studios and a selection of third-party studios for which they publish and monetize games. Consumer Revenue Consumer Revenue is generated when a user of one of our Apps makes an in-app purchase (IAP). Our Apps are generally free-to-play mobile games and generate Consumer Revenue through IAPs. IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from our Apps. The vast majority of our IAP revenue flows through two app stores,Apple App Store andJune 30, 2021 , we had an average of 2.7 million Monthly Active Payers (MAPs) across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer (ARPMAP) of$44 . Leveraging the benefit of our integrated Platform and Apps, we see opportunities to grow our App-related revenue streams by increasing MAPs and expanding ARPMAP within existing games and through new game development, acquisitions and partnerships. See "Key Metrics" below for additional information on how we calculate MAPs and ARPMAP. 1 We measure Net Dollar-Based Retention Rate for the twelve months endedJune 30, 2021 for our Enterprise Clients as current period revenue divided by prior period revenue. Prior period revenue is measured as revenue for the twelve months endedJune 30, 2020 from our Enterprise Clients as ofJune 30, 2020 . Current period revenue is revenue for the twelve months endedJune 30, 2021 from our Enterprise Clients as ofJune 30, 2021 , and excludes revenue from any new Enterprise Clients during the twelve months endedJune 30, 2021 . 32 -------------------------------------------------------------------------------- Table of contents Key Metrics We review the following key metrics on a regular basis in order to evaluate the health of our business, identify trends affecting our performance, prepare financial projections, and make strategic decisions. Annual Key Metrics Enterprise Clients. We focus on the number of Enterprise Clients, which are third-party business clients from whom we have collected greater than$125,000 of revenue in the trailing 12 months to a given date. Enterprise Clients generate the vast majority of our Business Revenue and Business Revenue growth. We expect to increase the revenue from Enterprise Clients over time. Revenue Per Enterprise Client (RPEC). We define RPEC as (i) the total revenue derived from our Enterprise Clients in a twelve- month period, divided by (ii) Enterprise Clients as of the end of that same period. RPEC shows how efficiently we are monetizing each Enterprise Client. We expect to increase RPEC over time as we enhance our Software Platform and Apps. The following table shows our Enterprise Clients as ofJune 30, 2021 and 2020, and our RPEC for the twelve months endedJune 30, 2021 and 2020. Twelve months ended June 30, 2021 2020 Enterprise Clients 247 153 Revenue Per Enterprise Client (in thousands)$ 3,871 $
3,871
Quarterly Key Metrics Software Platform Enterprise Clients. We focus on the number of Software Platform Enterprise Clients, which are third-party business clients from whom we have collected greater than$31,250 of Software Platform revenue in the three months to a given date, equating to an annual run-rate of$125,000 in revenue. Software Platform Enterprise Clients generate the vast majority of our Business Revenue - Software Platform and Business Revenue - Software Platform growth. The following table shows our Software Platform Enterprise Clients as ofJune 30, 2021 and 2020. Three Months Ended June 30, 2021 2020 Software Platform Enterprise Clients 366 115 Monthly Active Payers (MAPs). We define a MAP as a unique mobile device active on one of our Apps in a month that completed at least one IAP during that time period. A consumer who makes IAPs within two separate Apps on the same mobile device in a monthly period will be counted as two MAPs. MAPs for a particular time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution partners. Some of our Apps do not utilize such third-party attribution partners, and therefore our MAPs figure for any period does not capture every user that completed an IAP on our Apps. We estimate that our counted MAPs generated approximately 96% of our Consumer Revenue during the three months endedJune 30, 2021 , and as such, management believes that MAPs are still a useful metric to measure the engagement and monetization potential of our games. We expect to increase our MAPs over time as we increase the number of our Apps and enhance the engagement and monetization of our Apps. Average Revenue Per Monthly Active Payer (ARPMAP). We define ARPMAP as (i) the total Consumer Revenue derived from our Apps in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP. We expect to increase ARPMAP over time as we enhance the monetization of our Apps. 33
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The following table shows our Monthly Active Payers and Average Revenue Per
Monthly Active Payer for the three months ended
Three Months Ended
June 30,
2021 2020
Monthly Active Payers (millions) 2.7 1.3 Average Revenue Per Monthly Active Payer$ 44 $ 42 Total Software Transaction Value. Business Software Platform revenue is from third-party clients using our software platform to find new customers. We do not recognize revenue from our own spend on our software platform. Therefore, we use TSTV to measure the scale and growth rates of our software platform, as it reflects the total value on our software platform including our first-party studios as though they were stand-alone businesses.
The following table shows our Total Software Transaction Value for the three
months ended
Three Months Ended
June 30,
2021 2020
Total Software Transaction Value
Our key metrics are not based on any standardized industry methodology and are
not necessarily calculated in the same manner or comparable to similarly titled
measures presented by other companies. Similarly, our key metrics may differ
from estimates published by third parties or from similarly titled metrics of
our competitors due to differences in methodology. The numbers that we use to
calculate TSTV, MAP, and ARPMAP are based on internal data. While these numbers
are based on what we believe to be reasonable judgments and estimates for the
applicable period of measurement, there are inherent challenges in measuring
usage and engagement. We regularly review and may adjust our processes for
calculating our internal metrics to improve their accuracy.
Non-GAAP Financial Metrics
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA for a particular period as net income (loss) before
interest expense and loss on settlement of debt, other (income) expense, net,
provision for (benefit from) income taxes, amortization, depreciation and
write-offs and as further adjusted for stock-based compensation expense,
acquisition-related expense and transaction bonus, loss (gain) on
extinguishments of acquisition related continent consideration, non-operating
foreign exchange losses, lease modification and abandonment of leasehold
improvements, and change in the fair value of contingent consideration. We
define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the same
period.
Adjusted EBITDA and Adjusted EBITDA margin are key measures we use to assess our
financial performance and are also used for internal planning and forecasting
purposes. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to
investors, analysts, and other interested parties because they can assist in
providing a more consistent and comparable overview of our operations across our
historical financial periods. In addition, these measures are frequently used by
analysts, investors, and other interested parties to evaluate and assess
performance. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction
with GAAP measures as part of our overall assessment of our performance,
including the preparation of our annual operating budget and quarterly
forecasts, to evaluate the effectiveness of our business strategies, and to
communicate with our board of directors concerning our financial performance.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and
are presented for supplemental informational purposes only and should not be
considered as alternatives or substitutes to financial information presented in
accordance with GAAP. These measures have certain limitations in that they do
not include the impact of certain expenses that are reflected in our
consolidated statement of operations that are necessary to run our business. Our
definitions may differ from the definitions used by other companies and
therefore
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comparability may be limited. In addition, other companies may not publish these
or similar metrics. Furthermore, these metrics have certain limitations in that
they do not include the impact of certain expenses that are reflected in our
consolidated statement of operations that are necessary to run our business.
Thus, our Adjusted EBITDA and Adjusted EBITDA margin should be considered in
addition to, not as substitutes for, or in isolation from, measures prepared in
accordance with GAAP.
The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for
the three and six months ended June 30, 2021 and 2020, and a reconciliation of
net income (loss) to Adjusted EBITDA:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income (loss) 14,364 (21,711) 3,789 (17,047)
Adjusted as follows:
Interest expense and loss on settlement of
debt 19,030 18,809 54,040 37,438
Other (income) / expense, net(1) 1,671 (3,413) (6,955) (4,523)
Provision for (benefit from) income taxes 14 (703) (3,166) 2,161
Amortization, depreciation and write-offs 107,156 51,425 195,973 83,704
Non-operating foreign exchange (gain) losses 6 40 (1,275) 40
Stock-based compensation(2) 29,435 5,032 59,394 8,494
Acquisition-related expense and transaction
bonus 12,056 3,554 12,994 5,211
Lease modification and abandonment of
leasehold improvements - 7,851 - 7,851
Adjusted EBITDA 183,732 60,884 314,794 123,329
Adjusted EBITDA Margin 27.5 % 20.3 % 24.7 % 22.0 %
(1) Excludes recurring operational foreign exchange gains and losses.
(2) The three and six months ended June 30, 2021 includes $2.3 million of bonus
compensation settled in stock outside of the scope of ASC 718.
Factors Affecting Our Performance
We believe that the future success of our business depends on many factors,
including the factors described below. While each of these factors presents
significant opportunities for our business, they also pose important challenges
that we must successfully address in order to continue to grow profitably while
maintaining strong cash flow.
Continue to invest in innovation
We have made, and intend to continue to make, significant investments in our
Core Technologies and Software Platform to enhance their effectiveness and value
proposition for our business clients. We expect that these investments will
require spending on research and development, and acquisitions and partnerships
related to technology components and products. We believe investments in our
Core Technologies, such as our launch of AXON and acquisition of MAX, will
further improve their effectiveness for developers. Our investments will also
allow us to enter new mobile app sectors outside of gaming. While our
investments in research and development and acquisitions and partnerships may
not result in revenue in the near term, we believe these investments position us
to increase our revenue over time.
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Retain and grow existing business clients
We rely on existing business clients for a significant portion of our revenue.
As we improve our Software Platform and Apps, we can attract additional spend
from these business clients. Our business clients include indie studio
developers and some of the largest mobile advertising platforms in the world. We
believe there is significant room for us to further expand our relationships
with these clients and increase their usage of our Software Platform. We have
invested in targeted sales and account-based marketing efforts to identify and
showcase opportunities to business clients and plan to continue to do so in the
future.
In the past, our business clients have generally increased their usage of our
Software Platform and Apps, and as a result, growth from existing business
clients has been a primary driver of our revenue growth. We must continue to
retain our existing business clients and expand their spend with us over time to
continue to grow our revenue, increase profitability and drive greater cash
flow.
Add new business clients globally
Our future success depends in part on our ability to acquire new business
clients. We recently increased our focus on markets outside the United States to
serve the needs of business clients globally. During the three months ended
June 30, 2021 , only 39% of our revenue from business clients was generated from
outside of the United States . We believe that the global opportunity is
significant and will continue to expand as developers and advertisers outside
the United States adopt our Software Platform and advertise on our Apps. We also
see opportunities to acquire new business clients outside of mobile gaming, as
the capabilities of our Core Technologies and Software Platform are relevant to
the broader mobile app ecosystem. We are investing in direct sales, product
development, education, and other capabilities to drive increased awareness and
adoption of our Software Platform and Apps, which investments may impact our
profitability in the near term as we seek further scale. We must continue to
acquire new business clients to grow our revenue, increase profitability, and
drive greater cash flow.
Optimization, growth, and expansion of our AppLovin Apps
We plan to continue to invest in developing new Apps and enhancing existing
Apps. Because our Apps are typically free to download and use, economically
acquiring users and monetizing through advertising and IAPs is critical to the
future success of our Apps. We plan to launch several new Apps per year, as well
as continue to make investments by acquiring and partnering with studios in
mobile gaming and other mobile app sectors.
Given our expertise in app marketing, we are able to pursue a highly-optimized
and scaled user acquisition investment playbook. During the three months ended
June 30, 2021 , we invested $265.5 million in sales and marketing, a large
percentage of which was invested in user acquisition to grow the number of users
engaging with our Apps. We believe the scale, insights, and effective
monetization strategies provided through our Software Platform and integrated
business model allow us to optimize ad spend across our portfolio of Apps. We
also invest in the growth of our Apps by improving in-game monetization,
optimizing game economies and in-game conversion, and opt-in business services,
such as creative services and localization. We must continue to optimize, grow,
and expand our Apps portfolio to grow our revenue, increase profitability, and
drive greater cash flow.
Continued execution of strategic acquisitions and partnerships
We intend to continue to make strategic acquisitions and enter into strategic
partnerships to grow our portfolio of Apps and add complementary software and
tools to our Core Technologies. Since the beginning of 2018, we have invested
over $2 billion in 18 strategic acquisitions and partnerships with mobile app
developers and for technologies to enhance our Core Technologies including the
acquisition of Adjust GmbH , which closed in April 2021 . We have been very
successful in growing mobile apps that we have added to our Apps portfolio. We
have also invested strategically to enhance our Core Technologies. For example,
in 2018 we acquired MAX, an in-app bidding platform, which improves monetization
on apps.
While we have a strong pipeline of strategic acquisition and partnership
opportunities, we believe our future results of operations will be affected by
our ability to continue to identify and execute such transactions that are
accretive to our growth and profitability.
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Growth and structure of the mobile app ecosystem
Our business and results of operations will be impacted by industry factors that
drive overall performance of the mobile app ecosystem. The mobile app ecosystem
has grown rapidly in recent years. We expect that any acceleration, or slowing,
of this growth would affect our business and results of operations. In addition,
even if the mobile app ecosystem continues to grow at its current rate, our
ability to position ourselves within the market will impact our business and
results of operations.
Mobile app developers, including AppLovin , rely on third-party platforms, such
as the Apple App Store and Google Play Store , among others, to distribute games,
collect payments made for IAPs, and target users with relevant advertising. We
expect this to continue for the foreseeable future. These third-party platforms
have significant market power and discretion to set platform fees, select which
apps to promote, and decide how much consumer information to provide to
advertising networks that enable our Software Platform to target users with
personalized and relevant advertising and allocate marketing campaigns in an
efficient and cost-effective manner. Any changes made in the policies of
third-party platforms could drive rapid change across the mobile app ecosystem.
For example, in June 2020 , Apple announced a plan to overhaul IDFA as part of a
new application tracking transparency framework which began being rolled out in
late April 2021 and, among other things, requires opt-in consent for certain
types of tracking. We rely in part on IDFA to provide us with data that helps
our Software Platform better market and monetize Apps and to the extent we are
unable to utilize IDFA or a similar offering, our Software Platform may not be
as effective, and we may not be able to continue to efficiently generate revenue
for our Apps. To date, these data privacy changes have had a relatively muted
impact on our overall operations.
New tools for developers, industry standards, and platforms may emerge in the
future. We believe our focus on the mobile app ecosystem has allowed us to
understand the needs of our business clients and our relentless innovation has
enabled us to quickly adapt to changes in the industry and pioneer new
solutions. We must continue to innovate and stay ahead of developments in the
mobile app ecosystem in order for our business to succeed and our results of
operations to continue to improve.
Impact of COVID-19
The COVID-19 pandemic and resulting social distancing
and shelter-in-place orders put in place around the world have caused widespread
disruption in global economies, productivity, and financial markets and have
altered the way in which we conduct our day-to-day business. As a result of
the COVID-19, pandemic we have temporarily closed our offices around the world,
including our corporate headquarters in Palo Alto, California , and implemented
travel restrictions. Our Software Platform and Apps do not require physical
interaction, thus, our ability to meet the needs of our clients and users has
not been materially affected. The full impact of the COVID-19 pandemic on the
global economy and the extent to which the pandemic may impact our business,
financial condition, and results of operations in the future remains uncertain.
See the section titled "Risk Factors-The COVID-19 pandemic and responses thereto
across the globe have altered how individuals interact with each other and
affected how we and our business partners are operating, and the extent to which
this situation will impact our future results of operations remains uncertain"
for additional information.
Components of Results of Operations
Revenue
We collect Business Revenue from advertisers spending on our Software Platform
and Apps. Business Revenue from our Software Platform is generated from our
advertisers, typically on a performance-based, cost-per-install basis, then
shared with our advertising publishers, typically on a cost per impression
model. Business Revenue generated from our Apps comes from advertisers that
purchase ad inventory from our diverse portfolio of Apps. Business Revenue from
our Apps was 53% of total Business Revenue for the three months ended June 30,
2021 .
We generate Consumer Revenue from IAPs made by users within our Apps.
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Cost of Revenue and Operating Expenses
Cost of revenue. Cost of revenue consists primarily of third-party payment
processing fees for distribution partners, amortization of acquired technology
related intangible assets, and expenses associated with operating our network
infrastructure. Third-party payment processing fees relate to Consumer Revenue.
The fees for IAPs are processed and collected by third-party distribution
partners. Network operating costs include bandwidth, energy, other equipment
costs related to our co-located data centers and costs for third-party cloud
service providers. We expect our cost of revenue to increase in absolute dollars
over the long term as our business and revenue continue to grow. We also expect
our cost of revenue as a percentage of revenue to fluctuate period-over-period.
Sales and marketing. Sales and marketing expenses consist primarily of user
acquisition costs, other advertising expenses, personnel-related expenses for
salaries, employee benefits, and stock-based compensation for employees engaged
in sales and marketing, and amortization of acquired user-related intangible
assets, marketing programs, travel, customer service costs, and allocated
facilities and information technology costs.
We plan to continue to invest in sales and marketing to grow our customer base
and increase brand awareness. As a result, we expect sales and marketing
expenses to increase in absolute dollars. We also expect our sales and marketing
expenses as a percentage of revenue to fluctuate period-over-period in the near
term as we invest to grow our customer base and increase brand awareness, and to
decrease over the long term as we benefit from greater scale.
Research and development. Research and development expenses consist primarily of
product development costs, including personnel-related expenses for salaries,
employee benefits, and stock-based compensation for employees engaged in
research and development, professional services costs related to development of
new apps by third parties, consulting costs, regulatory compliance costs, and
allocated facilities and information technology costs.
We plan to continue to invest in research and development to continue to enhance
our Core Technologies and Software Platform, and to improve existing games and
develop new games. As a result, we expect research and development expenses to
increase in absolute dollars. We also expect our research and development
expenses as a percentage of revenue to fluctuate period-over-period in the near
term as we invest to enhance our Core Technologies and Software Platform and
improve our existing Apps and develop new Apps, and to decrease over the long
term as we benefit from greater scale.
General and administrative. General and administrative expenses consist
primarily of costs incurred to support our business, including personnel-related
expenses for salaries, employee benefits, and stock-based compensation for
employees engaged in finance, accounting, legal, human resources and
administration, professional services fees for legal, accounting, recruiting,
and administrative services (including acquisition-related expenses), insurance,
travel, and allocated facilities and information technology costs.
We plan to continue to invest in our general and administrative function to
support the growth of our business. In addition, we expect to incur additional
general and administrative expenses as a result of operating as a public
company, including expenses related to compliance and reporting obligations of a
public company, increased insurance and investor relations expenses, and
increased professional services fees (including acquisition-related expenses).
As a result, we expect general and administrative expenses to increase in
absolute dollars. We also expect our general and administrative expenses as a
percentage of revenue to fluctuate period-over-period in the near term as we
invest to support the growth of our business, and to decrease over the long term
as we benefit from greater scale.
Interest expense and loss on settlement of debt. Interest expense and loss on
settlement of debt consists primarily of loss related to debt extinguishment,
interest expense associated with our outstanding debt, including accretion of
debt discount, and changes in fair value of interest rate swap accounted for as
a cash flow hedge related to the stream of variable interest payments associated
with a portion of our outstanding debt.
Other income (expense), net. Other income (expense), net, includes interest
earned on our cash and cash equivalents, gains and losses related to embedded
derivatives and other financial instruments accounted for at fair value, and
foreign currency exchange gains (losses), which consist primarily of
remeasurement of transactions and monetary assets and liabilities denominated in
currencies other than the functional currency at the end of the period.
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Provision for (benefit from) income taxes. We are subject to income taxes in the
United States and foreign jurisdictions in which we do business. These foreign
jurisdictions have different statutory tax rates than those in the United
States . Additionally, certain of our foreign earnings may also be taxable in the
United States . Accordingly, our effective tax rate will vary depending on the
relative proportion of foreign to domestic income, impacts from acquisition
restructuring, deduction benefits related to foreign-derived intangible income,
future changes in the valuation of our deferred tax assets and liabilities, and
changes in tax laws. Additionally, our effective tax rate can vary based on the
amount of pre-tax income or loss.
Results of Operations
The following table summarizes our historical condensed consolidated statements
of operations data:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Revenue $ 668,806 $ 299,331 $ 1,272,683 $ 559,509
Costs and expenses:
Cost of revenue(1)(2) 245,853 118,051 468,914 194,504
Sales and marketing(1)(2) 265,463 135,319 530,976 263,986
Research and development(1) 77,462 29,702 138,338 48,814
General and administrative(1) 45,050 15,170 88,012 25,980
Lease modification and abandonment of
leasehold improvements - 7,851 - 7,851
Total costs and expenses 633,828 306,093 1,226,240 541,135
Income (loss) from operations 34,978 (6,762) 46,443 18,374
Other income (expense):
Interest expense and loss on settlement of
debt (19,030) (18,809) (54,040) (37,438)
Other income (expense), net (1,570) 3,157 8,220 4,178
Total other income (expense) (20,600) (15,652) (45,820) (33,260)
Income (loss) before income taxes 14,378 (22,414) 623 (14,886)
Provision for (benefit from) income taxes 14 (703) (3,166) 2,161
Net income (loss) $ 14,364 $ (21,711) $ 3,789 $ (17,047)
__________________(1) Includes stock-based compensation expense as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Cost of revenue $ 473 $ 49 $ 582 $ 78
Sales and marketing 2,221 789 4,040 1,241
Research and development 13,573 2,342 20,038 3,869
General and administrative 10,877 1,852 32,443 3,306
Total stock-based compensation
(2) Includes amortization expense related to acquired intangibles as follows:
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Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Cost of revenue $ 95,200 $ 44,562 $ 177,385 $ 72,138
Sales and marketing 6,034 2,726 9,243 5,420
Total amortization expense related to
acquired intangibles $ 101,234 $ 47,288 $ 186,628 $ 77,558
The following table sets forth the components of our condensed consolidated
statements of operations for each of the periods presented as a percentage of
revenue(1):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenue 100 % 100 % 100 % 100 %
Costs and expenses:
Cost of revenue 37 % 39 % 37 % 35 %
Sales and marketing 40 % 45 % 42 % 47 %
Research and development 12 % 10 % 11 % 9 %
General and administrative 7 % 5 % 7 % 5 %
Lease modification and abandonment of
leasehold improvements - % 3 % - % 1 %
Total costs and expenses 95 % 102 % 96 % 97 %
Income (loss) from operations 5 % (2) % 4 % 3 %
Other income (expense):
Interest expense and loss on settlement of
debt (3) % (6) % (4) % (7) %
Other income (expense), net 0 % 1 % 1 % 1 %
Total other income (expense) (3) % (5) % (4) % (6) %
Income (loss) before income taxes 2 % (7) % 0 % (3) %
Provision for (benefit from) income taxes 0 % 0 % 0 % 0 %
Net income (loss) 2 % (7) % 0 % (3) %
_________________(1) Totals of percentages of revenue may not foot due to rounding.
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Comparison of Our Results of Operations for the Three and Six Months Ended
June 30, 2021 and 2020
Revenue
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % change 2021 2020 % change
Business Revenue - Apps $ 162,223 $ 95,583 70 % $ 319,186 $ 195,332 63 %
Business Revenue - Software
Platform 145,664 40,909 256 % 234,083 87,421 168 %
Total Business Revenue 307,887 136,492 126 % 553,269 282,753 96 %
Consumer Revenue 360,919 162,839 122 % 719,414 276,756 160 %
Total Revenue $ 668,806 $ 299,331 123 % $ 1,272,683 $ 559,509 127 %
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Total revenue increased by $369.5 million , or 123%, for the three months ended
June 30, 2021 compared to the prior year period due to increases in Business
Revenue - Software Platform of 256%, Business Revenue - Apps of 70% and Consumer
Revenue of 122%.
For the three months ended June 30, 2021 , our Business Revenue increased by
$171.4 million from the prior year period. For the three months ended June 30,
2021 , our Business Revenue from our Software Platform increased by
$104.8 million from the prior year period primarily due to AppDiscovery where
installations increased 91% and price per installation increased 57% compared to
the prior year period as well as our addition of Adjust during the quarter. The
increase in our Business Revenue from Apps of $66.6 million was primarily a
result of increased advertising revenue from existing Apps and new Apps
developed by our Owned and Partner Studios which contributed $46.7 million of
the increase while acquired Apps contributed the remaining increase. Our
Business Revenue from Apps grew due to a 31% increase in price per advertising
impression and a 30% increase in the volume of advertising impressions compared
to the prior year period. Usage of advertising inventory by our Owned Studios
and Partner Studios represented 24% of installations during the three months
ended June 30, 2021 . We do not recognize Business Revenue from transactions with
our Owned Studios and Partner Studios .
For the three months ended June 30, 2021 , our Consumer Revenue increased by
$198.1 million from the prior year period, primarily due to a 107% increase in
the volume of in-app purchases, as well as a 7% increase in price
per in-app purchase. Existing and newly developed Apps by our Owned and Partner
Studios contributed $160.7 million of the increase, while Apps acquired since
June 30, 2020 generated the remaining increase.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Total revenue increased by $713.2 million , or 127%, for the six months ended
June 30, 2021 compared to the prior year period due to increases in Business
Revenue - Software Platform of 168%, Business Revenue - Apps of 63% and Consumer
Revenue of 160%.
For the six months ended June 30, 2021 , our Business Revenue increased by $270.5
million from the prior year period. For the six months ended June 30, 2021 , our
Business Revenue from our Software Platform increased by $146.7 million from the
prior year period primarily due to AppDiscovery where installations increased
82% and price per installation increased 27% compared to the prior year period
as well as our addition of Adjust during the period. Our Business Revenue from
Apps grew due to a 34% increase in the volume of advertising impressions and a
22% increase in price per advertising impression compared to the prior year
period. Usage of advertising inventory by our Owned Studios and Partner Studios
represented 24% of installations during the six months ended June 30, 2021 . We
do not recognize Business Revenue from transactions with our Owned Studios and
Partner Studios .
For the six months ended June 30, 2021 , our Consumer Revenue increased by $442.7
million from the prior year period, primarily due to a 138% increase in the
volume of in-app purchases, as well as a 9% increase in price
per in-app purchase.
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Cost of revenue
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
Cost of revenue $ 245,853 $ 118,051 108 % $ 468,914 $ 194,504 141 %
Percentage of revenue 37 % 39 % 37 % 35 %
Cost of revenue in the three months ended June 30, 2021 increased by $127.8
million , or 108%, compared to the same period in the prior year. The increase in
the three months ended June 30, 2021 was primarily due to an increase of
$54.1 million in third-party payment processing fees as a result of the growth
in Consumer Revenue, $52.6 million in depreciation & amortization of
acquired-technology driven by an increase in acquisition activity, and an
increase of $14.2 million in expenses associated with operating our network
infrastructure driven by the growth in our operations.
Cost of revenue in the six months ended June 30, 2021 increased by $274.4
million , or 141%, compared to the same period in the prior year. The increase in
the six months ended June 30, 2021 was primarily due to an increase of $127.1
million in third-party payment processing fees as a result of the growth in
Consumer Revenue, $107.4 million in depreciation & amortization of
acquired-technology driven by an increase in acquisition activity, and an
increase in expenses associated with operating our network infrastructure driven
by the growth in our operations of $27.7 million .
Sales and marketing
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
Sales and marketing $ 265,463 $ 135,319 96 % $ 530,976 $ 263,986 101 %
Percentage of revenue 40 % 45 % 42 % 47 %
Sales and marketing expenses in the three months ended June 30, 2021 increased
by $130.1 million , or 96%, compared to the same period in the prior year
primarily due to a $113.6 million increase in user acquisition costs.
Sales and marketing expenses in the six months ended June 30, 2021 increased by
$267.0 million , or 101%, compared to the same period in the prior year primarily
due to a $244.2 million increase in user acquisition costs.
Research and development
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
Research and development $ 77,462 $ 29,702 161 % $ 138,338 $ 48,814 183 %
Percentage of revenue 12 % 10 % 11 % 9 %
Research and development expenses in the three months ended June 30, 2021
increased by $47.8 million , or 161%, compared to the same period in the prior
year. The increase in the three months was primarily due to an increase of $23.0
million in professional services costs related to development of new games by
third parties and an increase of $22.6 million in personnel-related expenses
related to an increase in stock-based compensation as a result of higher fair
value of our common stock and an increase in headcount.
Research and development expenses in the six months ended June 30, 2021
increased by $89.5 million , or 183%, compared to the same period in the prior
year. The increase in the six months was primarily due to an increase of $40.9
million in professional services costs related to development of new games by
third parties and an
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increase of $42.2 million in personnel-related expenses related to an increase
in stock-based compensation as a result of higher fair value of our common stock
and an increase in headcount.
General and administrative
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
General and administrative $ 45,050 $ 15,170 197 % $ 88,012 $ 25,980 239 %
Percentage of revenue 7 % 5 % 7 % 5 %
General and administrative expenses in the three months ended June 30, 2021
increased by $29.9 million , or 197%, compared to the same period in the prior
year. The increase in the three months was primarily due to an increase of $23.5
million in personnel-related expenses related to an increase stock-based
compensation expense due to higher fair value of our common stock and an
increase in headcount to support our growth.
General and administrative expenses in the six months ended June 30, 2021
increased by $62.0 million , or 239% compared to the same periods in the prior
year. The increase in the six months was primarily due to an increase of $52.5
million in personnel-related expenses related to an increase stock-based
compensation expense due to higher fair value of our common stock and an
increase in headcount to support our growth.
Lease modification and abandonment of leasehold improvements
We recognized a net loss of
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
Interest expense and loss on
settlement of debt $ (19,030) $ (18,809) 1 % $ (54,040) $ (37,438) 44 %
Percentage of revenue (3) % (6) % (4) % (7) %
In the three and six months ended June 30, 2021 , Interest expense and loss on
settlement of debt increased by $0.2 million , or 1%, and $16.6 million , or 44%,
respectively, compared to the same periods in the prior year. The increase in
the six months ended June 30, 2021 was primarily due to a loss on the settlement
of term loans of $16.9 million during the period.
Other income (expense), net
Three Months Ended 2020 to Six Months Ended 2020 to
June 30, 2021 June 30, 2021
2021 2020 % Change 2021 2020 % Change
(in thousands, except percentages) (in thousands, except percentages)
Other income (expense), net $ (1,570) $ 3,157 (150) % $ 8,220 $ 4,178 97 %
Percentage of revenue - % 1 % 1 % 1 %
In the three months ended June 30, 2021 , Other income (expense), net decreased
by $4.7 million , or 150%, compared to the same period in the prior year. The
decrease was primarily due to a reduction in gains associated with a term loan
embedded derivative of $1.9 million , a fair value remeasurement loss of $1.8
million and an unrealized loss of $0.6 million related to marketable equity
securities.
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In the six months ended June 30, 2021 , Other income (expense), net increased by
$4.0 million , or 97% compared to the same period in the prior year. The increase
was primarily due to an increase in gains of $4.7 million related to term loan
embedded derivative and $4.7 million related to marketable equity securities,
partially offset by $3.4 million in debt issuance costs and $2.5 million in fair
value remeasurement of convertible securities.
Liquidity and Capital Resources
Since inception, we financed our operations primarily through payments received
from business clients using our Software Platform and advertising on our Apps,
and from user IAPs from our Apps, and through net proceeds we received from the
sales of our convertible preferred stock and borrowings made under our Credit
Agreement. As of June 30, 2021 , we had cash and cash equivalents of $1,183.7
million .
We believe that our existing cash and cash equivalents would be sufficient to
satisfy our anticipated working capital and capital expenditures needs for at
least the next 12 months. Our future capital requirements, however, will depend
on many factors, including our growth rate; expansion of sales and marketing
activities; timing and extent of spending to support our research and
development efforts; capital expenditures to purchase hardware and software; and
our continued need to invest in our IT infrastructure to support our growth. In
addition, we may enter into additional strategic partnerships as well as
agreements to acquire or invest in teams and technologies, including
intellectual property rights, which could increase our cash requirements. As a
result of these and other factors, we may be required to seek additional equity
or debt financing sooner than we currently anticipate. If additional financing
from outside sources is required, we may not be able to raise it on terms
acceptable to us, or at all. If we are unable to raise additional capital when
required, or if we cannot expand our operations or otherwise capitalize on our
business opportunities because we lack sufficient capital, our business,
financial condition, and results of operations could be adversely affected.
On April 19, 2021 , we completed our initial public offering, in which we sold
22,500,000 shares of Class A common stock at price to the public of $80.00 per
share. We received aggregate net proceeds of $1.75 billion after deducting
underwriting discounts and commissions of $47.2 million and offering expenses of
$7.9 million subject to certain cost reimbursements.
The following table summarizes our cash flows for the periods indicated:
Six Months Ended
June 30,
2021 2020
(in thousands)
Net cash provided by operating activities
Operating Activities Net cash provided by operating activities was$152.3 million for the six months endedJune 30, 2021 , primarily consisting of$3.8 million of net income, adjusted for certain non-cash items, which included$196.0 million of amortization, depreciation and write-offs,$57.1 million of stock-based compensation expense,$16.9 million of loss on settlement of debt,$12.3 million of change in operating right of use asset and$6.4 million of amortization of debt issuance costs and discount, and$9.9 million of net unrealized gains on fair value remeasurement of financial instruments partially offset by a net increase in the operating assets and liabilities of$131.2 million . The net increase in the operating assets and liabilities was primarily driven by an increase in accounts receivable, prepaid expenses and other current assets and decrease in operating lease liabilities partially offset by higher accounts payable and accrued and other liabilities. Net cash provided by operating activities was$85.3 million for the six months endedJune 30, 2020 , primarily consisting of$17.0 million of net loss, adjusted for certain non-cash items, which included$83.7 million of depreciation and amortization expense,$8.5 million of stock-based compensation expense,$7.9 million of lease modification and abandonment of leasehold improvements,$3.6 million of change in operating right of use asset, and$3.4 million of amortization of debt issuance costs and discount, partially offset by a net increase in the operating assets and liabilities of$2.0 million . The net increase in the operating assets and liabilities was primarily 44 -------------------------------------------------------------------------------- Table of contents driven by an increase in prepaid expenses and other current assets, decrease in accounts payable, accrued and other liabilities, operating lease liabilities partially offset by an increase in deferred revenue and lower accounts receivable and other assets. Investing Activities Net cash used in investing activities was$1,023.2 million for the six months endedJune 30, 2021 , primarily consisting of$1,017.0 million related to acquisitions, and$14.0 million in purchases of non-marketable investments and other and$10.0 million in proceeds from other investing activity. Net cash used in investing activities was$524.4 million for the six months endedJune 30, 2020 , primarily related to acquisitions. Financing Activities Net cash provided by financing activities was$1,737.8 million for the six months endedJune 30, 2021 , primarily consisting of$1,744.2 million of proceeds from issuance of common stock in initial public offering, net of issuance costs as adjusted for cost reimbursement,$844.7 million of proceeds from debt issuance and$17.9 million proceeds from exercise of stock awards partially offset by payments for the principal repayment of debt of$706.9 million , deferred acquisition costs of$157.6 million and finance leases of$4.6 million . Net cash provided by financing activities was$257.8 million for the six months endedJune 30, 2020 , primarily consisting of$331.3 million of proceeds from debt issuance partially offset by payments for the principal repayment of debt of$56.7 million , deferred acquisition costs of$11.0 million and finance leases of$4.4 million . Credit Agreement We are party to a credit agreement (the "Credit Agreement"), which provides for senior secured term loans and a revolving credit facility. We used proceeds from our initial public offering to repay in full the aggregate amount of$400.0 million outstanding under the revolving credit facility inApril 2021 . As ofJune 30, 2021 , our total outstanding indebtedness under the Credit Agreement was$1.79 billion , consisting of outstanding term loans. See Note 8, Credit Agreement, in the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. Contractual Obligations InApril 2021 , we completed two separate transactions to acquire certain mobile game Apps from two foreign-based independent mobile game developers in exchange for an aggregate upfront cash consideration of$300.0 million and potential future earn-out payments. With respect to the first transaction, the potential future earn-out payments are contingent on the revenue generated by the acquired game Apps exceeding a certain revenue threshold, which will be measured and payable (if applicable) each year for four years from the date of the transaction. With respect to the second transaction, the potential future earn-out payments will be determined in a manner similar to the first transaction, in addition to a potential one-time earn-out payment of$50.0 million contingent on the achievement of a certain monthly revenue milestone within the four years following the date of the transaction. Because these contingent consideration arrangements are based on the success of relevant Apps and are not guaranteed, we do not expect our results of operations would be materially and adversely affected by the payment of amounts under such arrangements. InMay 2021 , we amended a certain agreement with a cloud service provider to increase the aggregate spend commitment from$130.0 million to$300.0 million throughMay 2026 . InJune 2021 , we acquired certain mobile Apps from a foreign-based independent mobile game developer in exchange for an upfront cash consideration of$130.0 million and future earn-out payments. The potential future earn-out payments for the acquired mobile Apps are contingent on the revenue and/or earnings before interest, taxes, depreciation and amortization ("EBITDA") generated by the acquired Apps exceeding certain thresholds. Because these contingent consideration arrangements are based on the success of relevant Apps and are not guaranteed, we do not expect our results of operations would be materially and adversely affected by the payment of amounts under such arrangements. 45
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Table of contents With the exception of the transactions described above and except for scheduled payments from the ongoing business, there were no material changes in our commitments under contractual obligations as ofDecember 31, 2020 as disclosed in our final prospectus relating to our initial public offering datedApril 14, 2021 . Off-Balance Sheet Arrangements As ofJune 30, 2021 , we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenue, or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates during the three months endedJune 30, 2021 , as compared to those disclosed in our Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in our final prospectus filed with theSEC onApril 7, 2021 (our "Prospectus") pursuant to Rule 424(b) under the Securities Act of 1933, as amended ("Securities Act"). Recent Accounting Pronouncements See Note 2, "Summary of Accounting Pronouncements," of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
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